(The Big Disrupt) Music Streaming: Why the war between Apple and Spotify is already over

Spotify, the ten year old Swedish based music streaming service currently holds a very strong market position with the company recently hitting 100 million users with 30 million paid subscribers and also is planning expansion into other markets such as video and live music. Looking at the company's dominant position in the marketplace, You would think that Spotify would have nothing to fear from a year old music streaming offering given all of its advantages in subscriber base and users but Spotify could end up losing it's strong position in the music streaming market within two years.  

Spotify's founder and CEO Daniel Ek rightly predicted that Apple entering the music streaming market would boost his company growth as well the market as a whole and went as far to publicly thank the Cupertino based company for doing so. Spotify's vice president Jonathan Forster also praised Apple for entering the market while also throwing shade at the competition as he said ""It's great that Apple is in the game. They are definitely raising the profile of streaming. It is hard to build an industry on your own""1. However, what Ek and Forster didn't account for was Apple's music's stunning growth with the service pulling in a reported 15 million paid subscribers within a year. 

While there are commentators that point out that despite Apple Music's fantastic growth, they still trail Spotify in users and paid subscribers, those commentators are also aware that only recently has Spotify mirrored the level of growth Apple Music has achieved in its maiden year. It took Spotify nearly 8 years to reach Apple Music's current paid subscriber user base and another 3 three years to double it and yet may end up trailing the service in paid subscribers should Apple Music make a  few acquisitions and match it's level of growth so far. 

Apple music's growth is quite incredible given the questions from the outset about the quality of the service forcing Apple to launch a redesign of interface just a few months ago. Spotify, an established player in the market, has never had any public complaints about its service and is loved by just about every who uses it (except artists, which we'll talk about later).  

Though he won't publicly admit it, what really must concern Ek is Apple Music's impressive trial to subscriber conversion rate which dwarfs Spotify's comparatively measly 25% free to paid subscriber conversion rate. What this means is that Apple Music is extracting more value from its users than Spotify at a faster rate which is a problem for Spotify and everybody else in the music streaming market. 

Spotify has resisted pressure from labels and artists for years to ditch its ad supported subscriber base and with Apple Music's growth, Spotify maybe forced to charge its free user base which means that Spotify may have to face the tradeoff of losing many of its free users but increase its paid subscriber base.  

However, the main reason why Apple may end up leaving Spotify and its other competitors in the dirt is that it may have the best relationship (maybe save Tidal) with the music streaming market real crown jewels: artists. Spotify has long been positioned as the big bad among artists who have publicly complained in the press and elsewhere about Spotify's paltry royally payouts. Ek in response to calls for Spotify to increase it's royalty payouts by prominent artists has rightly pointed out that their labels were the ones extracting the majority the value through the ownership of their music but his moot point hasn't stopped Spotify from being attacked by major artists. 

Spotify's inability to get artists onside despite their many efforts to do so from opening up its analytics platform to artists to revealing just how badly they're getting screwed by their labels may lead to Apple Music claiming the music streaming market outright. If recent reports of Apple considering taking rival music streaming service Tidal off legendary hip hop artist and mogul Jay Z's hands prove to be true, Apple would instantly have a monopoly on album exclusives from popular artists such as Kanye West, Beyonce and Drake which would be terrible news for Spotify. 

Album exclusives have proven to be gold dust for music streaming services as far as boosting subscribers is concerned as a large chunk of Tidal's subscriber base has been generated solely from album exclusives, most notably demonstrated by Beyonce's most recent album release "lemonade" which brought in an incredible 1.2 million subscribers in a week.    

Apple's purchase of Tidal will instantly give Apple a lot of power in the marketplace as they can debut music from popular artists before anyone else and, more importantly, have a big say where it debuts next. While Spotify can easily offer their own exclusives with prominent artists, Apple already have deals with big hitters such as Drake and Taylor Swift (who left Spotify over royalties) and with a Tidal acquisition, would pretty much gobble up the exclusives left worth having. 

We've already written articles on  The Carnage Report outlining why Apple will eventually win the music streaming market through it's marketing machine and ability to hand out big royalty payouts but none of us were expecting Apple Music to gain on Spotify in paid subscribers as fast as it has. However, we do expect Spotify to put up a real fight to the end as Ek has signaled he's not going to sell and revealed his burning ambition to for Spotify to be one of the few European startups to face up with a Valley giant and live to tell the story. 

In sum, Spotify will do everything in their power to stop Apple Music taking over the music streaming market but with the rate Apple Music is acquiring paid subscribers and a Tidal acquisition being considered that would take Spotify out of the lucrative album exclusives market, Spotify have the look of an acquisition target waiting to happen, soon.     

(1) Quotes by  M. Shanley and J. Weber, 2016, Spotify says growth has quickened since Apple Music's launch, http://www.reuters.com/article/us-spotify-future-idUSKCN0Y023B

               

(The Big Disrupt) Tidal: Why Is Everybody Hating On TIDAL?

There's much you can say about Tidal from its ham fisted presentation to it's ludicrous pricing strategy and poor reading of its target audience but what can't be said is that nobody saw an artist owned service like TIDAL coming or its necessity. 

Since some genius figured out how to make a dime off music, artists haven't had much control over how or where their music is sold as many artists, then and now, don't own their own music. This is because when signing with a label, artists maybe could negotiate keeping their publishing or image rights but would basically have fight tooth and nail to keep or get their masters as quite simply the music business is built on owning the master recording of a song.

This simple truth is why labels are not out of business despite the steep decline in music sales as they make an ungodly sum of money off licensing the music of their artists long after their career is over and often long after their artists have passed away. This is why if you wanted to use Bing Crosby's "White Christmas" for a film or ad,  you would have to pay Universal Records through the nose to do it

Labels work hard to maintain their recording rights despite copyright law being tipped heavily in their favor as an artist can only regain ownership of their masters after 35 years have passed. Legendary artists like Prince had to wait three decades to regain their masters with Prince being particularly lucky that he didn't have to go through an expensive and arduous legal fight with Warner Brothers (his label) to get it.

If artists not having any control over their music weren’t enough of a rallying call to unite then surely labels licensing their music to streaming services like Spotify for large sums of money (large sums of money artists don't get a cut of as they don't own their masters) definitely tipped the scales. Labels licensing the music of their artists for large sums of money wouldn't be so bad if streaming services, particularly Spotify, weren't so tightfisted when it came to paying artists. However, Spotify have no choice but to penny pinch when it comes to paying artists as they've coughed up billions in licensing fees collected by labels since their inception.

So what we're really seeing is Spotify taking a lot of flak from artists when they should turn their attention to their labels as Gizmodo's Mario Aguilar pointed out "It's not Spotify that's fucking over artists, it's record labels". Labels have realized that they're not in the music business anymore and are in the licensing and marketing business which puts Labels in a position to screw artists twice by securing a big buyer of licensed music content in music streaming services and through large licensing fees, limit streaming services' ability to pay artists properly.

Artists have sustained an ecosystem designed to screw them over for ages from advances that in practice worked like horrible loans with interest rates that a mob connected loan sharks would find excessive to 360 deals made when labels realized artists were making more on the road than on music sales and decided they wanted a cut.

Tidal is not the worse idea in the world but it's easy to understand the visceral hate it has received since Jay-z and a bevy of music heavyweights held a rather self-congratulatory press conference. However it isn't necessarily the smartest move as music streaming is a rather competitive market and most music streaming services don't make money, just ask Spotify.

It was already going to be difficult to make money in the music streaming market but the truly barmy decision to price Tidal at $20 a month when their target audience can watch movies, TV shows, and listen to the music they love for less and, in many cases, for free is incredibly ill advised. If Twitter reaction is any gauge of how a product or service is received, the noble task of restoring the value of music is going to damn near impossible as just about everybody sees Tidal for the money move that it is.